The Australian Energy Regulator today issued its final decision on the transmission determination to apply to Transend's electricity transmission network for the regulatory control period 1 July 2009 to 30 June 2014.
Transend is the principal electricity transmission network service provider in the Tasmanian region of the National Electricity Market.
The AER proposes to set the maximum allowed revenue for Transend at $165 million in 2009–10, an increase of 14 per cent over 2008-09. The allowed revenue will increase to $222 million in 2013–14 (the last year of the period). The total revenue allowance over the regulatory control period is $962 million.
"This increase primarily reflects the need for Transend to augment its network to meet new network performance and security requirements and replace ageing assets," AER Chairman, Mr Steve Edwell, said.
"Since the AER's draft decision the total revenue allowance for the regulatory control period has decreased by $82 million, the capital expenditure allowance has been reduced by $8 million and the operating expenditure allowance has been reduced by $6 million.
"These reductions are a direct result of the AER taking into account the lower cost of finance and lower estimates of labour and material costs since the draft decision.
Mr Edwell said the final decision provides for investment of $607 million in Transend's electricity transmission network over the next five years, an increase of more than 57 per cent from the investment over the past five years.
This decision will fund a comprehensive program of major projects such as:
- Transend's asset renewal program - $ 200 million
- Waddamana-Lindisfarne transmission line and substation - $120 million
- Norwood-Mowbray transmission line - $28.6 million
- George Town substation security upgrade - $18.3 million
and all of Aurora's new connection point requests including:
- Hobart eastern shore - $23.5 million
- Wynyard substation - $23.4 million
- Newstead substation - $21 million.
Impact on consumers
The AER's final decision will result in a per MWh transmission charge of $18.13 in 2013-14, compared to the current per MWh transmission charge of $13.56 in 2008-09. This amounts to an average increase of 6.0 per cent per annum.
The AER estimates that the increase in average transmission charges for customers under this final transmission determination will add approximately $18 (or 1.3 per cent) in 2009-10, and approximately $9.50 for each subsequent year of the forthcoming regulatory control period to the average residential customer's annual bill.
Impact of the economic downturn
Since the AER commenced its review of Transend's revenue proposal in June 2008, domestic and international economic conditions have deteriorated sharply. This has led to revised projections of economic growth, labour and commodities prices as well as funding costs for network businesses.
"A number of submissions were received from major Tasmanian energy users on the draft decision expressing concern that slower economic conditions arising from the global financial crisis, would impact on Transend's required revenues." Mr Edwell said.
"For the final decision, the AER reconsidered some key aspects of its draft decision, taking into account recent changes in the economic outlook."
The most significant development since the AER's draft decision in November 2008 is the reduction in the yield on Commonwealth Government 10-year bonds from 5.46 per cent to 4.29 per cent in March 2009. This bond yield is the benchmark for determining Transend's return on capital.
Mr Edwell said the AER carefully considered the impact of recent developments in financial markets and the economy more broadly and considers that a marginally lower rate of return on investment for Transend is appropriate.
"This means that Transend's revenues for the next 5 years will be less than those determined in the draft decision.
"The economic downturn is also slowing growth in the cost of inputs such as labour and materials. The AER has undertaken a detailed analysis of forecast changes in these costs and, while they are still expected to rise over the next 5 years, the magnitude of these increases is now expected to be lower than previously anticipated. The AER's final decision on Transend's regulated revenues for the next 5 years reflects these revised cost forecasts," Mr Edwell said.
"While Tasmanian consumers will face higher charges as a result of the decision, they will also benefit from a more reliable network," Mr Edwell said. "Further, given the scope of new infrastructure that is proposed for Tasmania over the coming years, the investment by Transend over the next five years should ensure the electricity network is well placed to meet the needs of Tasmania well into the future."
In making its final decision, the AER took into account Transend's revised revenue proposal, submissions from interested parties and advice from independent experts. These documents are available on the AER's website.
Background
Transend is the transmission network service provider (TNSP) in Tasmania. It owns and operates 3650 circuit kms of transmission lines predominantly at 110 kV and 220 kV.
Transend also operates sub-transmission assets at voltages of 6.6 kV, 11 kV, 22 kV, 33 kV and 44 kV at substations connecting the Tasmanian transmission and distribution networks.
Under the National Electricity Law and the National Electricity Rules (NER), the Australian Energy Regulator is responsible for the economic regulation of electricity transmission services provided by TNSPs such as Transend in the National Electricity Market (NEM). The AER's principal task is to set the revenues that a TNSP can receive from the provision of prescribed transmission services.
On 31 May 2008, Transend submitted a revenue proposal to the AER, proposed negotiating framework and proposed pricing methodology in accordance with Chapter 6A of the NER.
On 21 November 2008, the AER handed down its draft decision on Transend's revenue proposal.
On 14 January 2007, Transend submitted a revised revenue proposal and a revised proposed pricing methodology in accordance with the requirements of the NER.
After further submissions from interested parties on Transend's revised proposal, the AER is now releasing its final decision on the transmission determination to apply to Transend.